Strong growth in services sector leads to jobs boom

The UK services sector posted another month of strong expansion in May, just slightly below the reading for April.

The latest Markit/CIPS UK Services Purchasing Managers’ Index for the sector recorded a headline figure of 58.6 last month – above the 50 mark that indicates expansion - compared with 58.7 seen in April, as new business continued to rise.

The historic levels of activity in the sector put pressure on capacity, which employers attempted to mitigate by hiring more staff at the joint-highest rate since May 1997. This had a knock-on effect on wages, pushing them up.

Input costs rose to a four-month high, with utility prices increasing as suppliers took advantage of rising demand to raise tariffs.

David Noble, group CEO, CIPS, said: “Firms in the services sector are creating jobs at a level seen only once since 1997 and offering bigger salaries to boot; a sign of ever-increasing confidence in the sector, which is enabling firms to support expansion and take advantage of improved economic conditions.

“This bullishness is built on a foundation of solid rises in business activity and new work. The increased capacity will also enable firms to work on their existing backlogs, which have risen for the fourteenth consecutive month.

Chris Williamson, chief economist at Markit, added: “With every strong PMI reading, the more lively the discussion will become among the Bank of England’s monetary policy committee that a pre-emptive early hike in interest rates is warranted. However, with inflationary pressures remaining subdued, the case for higher rates is by no means clear cut.”